Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that CyanConnode Holdings plc (LON:CYAN) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for CyanConnode Holdings

What Is CyanConnode Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that CyanConnode Holdings had UK£1.87m of debt in March 2022, down from UK£2.12m, one year before. But it also has UK£2.36m in cash to offset that, meaning it has UK£488.0k net cash.

How Healthy Is CyanConnode Holdings' Balance Sheet?

The latest balance sheet data shows that CyanConnode Holdings had liabilities of UK£4.45m due within a year, and liabilities of UK£909.0k falling due after that. On the other hand, it had cash of UK£2.36m and UK£7.56m worth of receivables due within a year. So it can boast UK£4.55m more liquid assets than total liabilities.

This surplus suggests that CyanConnode Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, CyanConnode Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine CyanConnode Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, CyanConnode Holdings reported revenue of UK£9.6m, which is a gain of 49%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.